Section 4 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002
- (1)The Reserve Bank may cancel a certificate of registration granted to a 1[asset reconstruction company], if such company--
- (a)ceases to carry on the business of securitisation or asset reconstruction; or
- (b)ceases to receive or hold any investment from a 2[qualified buyer]; or
- (c)has failed to comply with any conditions subject to which the certificate of registration has been granted to it; or
- (d)at any time fails to fulfil any of the conditions referred to in clauses (a) to (g) of sub-section (3) of section 3; or
- (e)fails to--
- (i)comply with any direction issued by the Reserve Bank under the provisions of this Act; or
- (ii)maintain accounts in accordance with the requirements of any law or any direction or order issued by the Reserve Bank under the provisions of this Act; or
- (iii)submit or offer for inspection its books of account or other relevant documents when so demanded by the Reserve Bank; or
- (iv)obtain prior approval of the Reserve Bank required under sub-section (6) of section 3: Provided that before cancelling a certificate of registration on the ground that the 3[asset reconstruction company] has failed to comply with the provisions of clause (c) or has failed to fulfil any of the conditions referred to in clause (d) or sub-clause (iv) of clause (e), the Reserve Bank, unless it is of the opinion that the delay in cancelling the certificate of registration granted under sub-section (4) of section 3 shall be prejudicial to the public interest or the interests of the investors or the 3[asset reconstruction company], shall give an opportunity to such company on such terms as the Reserve Bank may specify for taking necessary steps to comply with such provisions or fulfilment of such conditions.
- (2)A 3[asset reconstruction company] aggrieved by the order of 5*** cancellation of certificate of registration may prefer an appeal, within a period of thirty days from the date on which 6[such order of cancellation] is communicated to it, to the Central Government: Provided that before rejecting an appeal such company shall be given a reasonable opportunity of being heard.
- (3)A 3[asset reconstruction company], which is holding investments of 7[qualified buyers] and whose whose application for grant of certificate of registration has been rejected or certificate of registration has been cancelled shall, notwithstanding such rejection or cancellation be deemed to be a 3[asset reconstruction company]until it repays the entire investments held by it (together with interest, if any) within such period as the Reserve Bank may direct.
Summary
- This section gives the Reserve Bank the power to cancel a company's registration if it stops doing debt recovery business.
- It allows for cancellation if the company fails to follow the conditions under which its registration was granted or ignores Reserve Bank directions.
- It states that if a company loses its license, it can appeal to the Central Government within thirty days of getting the order.
- It protects investors by requiring a company whose license is cancelled to be treated as a registered company until it repays all its investments.
- It ensures companies are given a chance to explain or fix issues before their license is cancelled, unless waiting would hurt the public interest.
Practical examples
FAQ
1. On what grounds can the Reserve Bank cancel a registration under Section 4 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002?
Grounds include stopping business, failing to hold investments from qualified buyers, or not following the conditions of their license or Reserve Bank directions.
2. If an asset reconstruction company is unhappy with its license being cancelled, who can it complain to under Section 4?
It can file an appeal with the Central Government within thirty days of the cancellation order.
3. Can the Reserve Bank cancel a license without giving a company a chance to fix the problem according to Section 4 of the Act?
Usually, they must give the company a chance to comply, unless they believe a delay would be harmful to the public interest or investors.
4. If a company's license is cancelled under Section 4, what happens to the money it still owes to investors?
The company is still treated as a registered asset reconstruction company until it repays all those investments.
Test yourself
Q1.Under Section 4 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, how long does a company have to appeal a cancellation?
Q2.According to Section 4, who hears the appeal if an asset reconstruction company's registration is cancelled?
Q3.Under Section 4 of The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, a company's registration can be cancelled if it ceases to hold investments from:
Q4.If a company's license is cancelled under Section 4 of the Act but it still holds investor money, what is its legal status?
Q5.Under Section 4, which of these is a valid reason for the Reserve Bank to cancel a registration?